Barclays Remains Bullish On Airlines, Despite 2016 Expected To Be 'One Of The Worst Years Of Revenue Growth' Since 1984

Fuel prices have dropped around 10 percent since airliners last reported their earnings in July.

David Fintzen of Barclays commented in a note on Thursday that airliners will continue to be a "net beneficiary" of low oil.

The bullish thesis isn't as "flawless" as it was in 2013, but remains "rather compelling," Fintzen added.

While airliners are a clear beneficiary of low oil and fuel prices, investors may be overlooking RASM (revenue per available seat mile) trends.

In a report published Thursday, Barclays analyst David Fintzen assumes the U.S. economic will show "tepid" economic growth with domestic revenue growth ranking among the worst in non-recession years dating back to the early 1980s. As such, the analyst revised his fourth quarter and 2016 revenue estimates for major airliners.

"On the revenue front, we think the long awaited ‘inflection' in RASM declines will show through ever so slightly in 4Q," Fintzen wrote. "Our 2016 outlook is one of the worst years of revenue growth since 1984, excluding recession years."

Specifics: Lowered Estimates

Specifically, Fintzen is projecting Q4 RASM declines of 4.1 percent for domestic carriers and 6.4 percent for international carriers with a system-wide decline of 4.4 percent.

For the full-year fiscal 2016, the analyst is projecting a RASM decline of 1.7 percent for domestic carriers, a slight 0.2 percent gain for international carriers and an overall 1.2 percent system-wide decline.

Estimates Higher On Reduced Revenue Outlook

Fintzen continued that the recent leg down in oil prices has come at the same time as airliners are reporting poor RASM figures and outlooks.

As an example, Southwest Airlines Co (NYSE: LUV) reported that it expects its third-quarter RASM to decrease approximately 1.0 percent from the same quarter a year ago.

At the same time, Delta Air Lines, Inc. (NYSE: DAL) guided for its third-quarter passenger unit sales to be lower by as much as 6.5 percent in the third quarter.

However, Fintzen argued that an environment of lower fuel prices should translate to higher earnings estimates, as cheaper oil provides some added revenue offset. The analyst suggested that every 100 basis points of industry revenue is roughly the equivalent of $4 billion oil, and airliners should continue to be a net beneficiary.

Fintzen further suggested that this has "appropriately" tempered expectations and is a "sharp contrast" to last fall's "robust" pricing environment. Accordingly, the low oil environment does offer a "positive ongoing catalyst" for airliners, but Street estimates may not "come up as quickly."

Earnings Per Share Revisions

Alaska Air Group, Inc. (NYSE: ALK) is now expected to earn $7.19 per share in its next fiscal year, up from prior estimates of $6.30 per share.

Allegiant Travel Company (NASDAQ: ALGT) is now expected to earn $14.69 per share in its next fiscal year, up from prior estimates of $12.55 per share.

American Airlines Group Inc (NASDAQ: AAL) is now expected to earn $6.16 per share in its next fiscal year, up from prior estimates of $5.20 per share.

Delta Air Lines is now expected to earn $6.13 per share in its next fiscal year, up from prior estimates of $5.35 per share.

JetBlue Airways Corporation (NASDAQ: JBLU) is now expected to earn $2.44 per share in its next fiscal year, up from prior estimates of $2.00 per share.

Southwest Airlines is now expected to earn $3.88 per share in its next fiscal year, up from prior estimates of $3.25 per share.

Spirit Airlines Incorporated (NASDAQ: SAVE) is now expected to earn $5.56 per share in its next fiscal year, up from prior estimates of $4.70 per share.

United Continental Holdings Inc (NYSE: UAL) is now expected to earn $9.28 per share in its next fiscal year, up from prior estimates of $7.25 per share.

Virgin America Inc (NASDAQ: VA) is now expected to earn $5.91 per share in its next fiscal year, up from prior estimates of $4.75 per share.